NYSE Euronext (NYX) has raised concerns that U.S. capital
markets could become less attractive to investors as countries
including Australia and Canada press ahead with curbs on private
stock dealing.
Stricter rules governing off-exchange stock trading venues such
as so-called "dark pool" platforms will boost investing in other
jurisdictions, while U.S. regulators have yet to take similar
actions, said a senior NYSE executive.
The warning is the latest from U.S. exchange operators concerned
about so-called "regulatory arbitrage," though most previous calls
have sought to highlight more lax oversight overseas, rather than
tougher rules.
One concern has been that the U.S. could lose ground if
investors and companies find other countries friendlier places to
trade and raise capital, though past warnings about U.S. curbs on
commodity speculation driving business to Asia have yet to prove
out.
NYSE has long argued in favor of tougher restrictions on private
securities markets run by banks and big brokerages, where investors
do business anonymously. They maintain such firms are more loosely
regulated, allowing them to be more nimble in reacting to market
changes by quickly tweaking functions of their platforms.
"Both the regulators in Canada and Australia seem to have
concluded and agreed with some of the points we've been making
about the effects off-exchange trading has on market quality," said
Joseph Mecane, head of U.S. equities for NYSE.
Dark pool operators maintain that they provide investors with a
necessary alternative to exchanges for big trades, often at better
prices than can be found on the Big Board or the Nasdaq Stock
Market.
In the U.S., more than 37% of all shares were traded on private
markets so far this month, according to BATS Global Markets Inc.,
on pace to set an all-time record. Exchange executives argue that
as the level of off-exchange activity rises, the prices broadcast
by exchanges mean less, because there are fewer trades behind those
prices.
Exchanges have been tussling with external operators for years
in Washington DC. Securities regulators have granted exchanges some
new capabilities to compete with banks while holding off on
regulations that would have required dark pools to publicly
disclose more of their activity.
Eric Noll, head of transaction services in the U.S. for Nasdaq
OMX Group Inc. (NDAQ), said the company was monitoring the effects
on Canadian and Australian markets, and supported a "broad review"
of U.S. market regulation to improve trading for investors.
Canadian regulators in 2012 began requiring private
stock-trading venues to provide better prices on share orders than
are available on exchanges, as well as a minimum size for trades
carried out privately.
Australia last year outlined plans curbing the number of
small-size transactions done on private platforms, and on Monday
its regulators proposed new rules requiring dark-pool operators to
release more information on the types of trading offered and
activity on their markets.
"The Australian regulators have done a pretty good job," said
Peter Hiom, deputy chief executive of ASX Ltd. (ASX.AU), the
country's main exchange operator, in a recent interview.
Officials at NYSE and Nasdaq OMX Group Inc. (NDAQ) have closely
watched the developments overseas, and NYSE's Mr. Mecane said in an
interview that curbs on dark trading will encourage institutions
and individual traders to put more money into those stock
markets.
A spokesman for the Securities and Exchange Commission said its
staff had drawn no conclusions from its analysis of trading data so
far.
It's too early to accurately gauge whether the Canadian and
Australian regulations have improved conditions for investors,
according to Justin Schack, a managing director at Rosenblatt
Securities, which researches securities markets.
Mr. Schack said It's harder to predict the effect such
regulations would have on the more than two dozen dark pool venues
that operate in the U.S., though some would likely struggle if
forced to better their prices or send trades to exchanges.
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